This is the accessible text file for GAO report number GAO-12-558
entitled 'Defense Acquisitions: Further Action Needed to Improve DOD's
Insight and Management of Long-term Maintenance Contracts' which was
released on June 1, 2012.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to the Subcommittee on Readiness, Committee on Armed Services,
House of Representatives:
May 2012:
Defense Acquisitions:
Further Action Needed to Improve DOD's Insight and Management of Long-
term Maintenance Contracts:
GAO-12-558:
GAO Highlights:
Highlights of GAO-12-558, a report to Subcommittee on Readiness,
Committee on Armed Services, House of Representatives.
Why GAO Did This Study:
DOD spends billions annually to maintain its weapon systems and, at
times, uses long-term maintenance contracts with a potential period of
performance of 5 years or more. These contracts can encourage
contractors to invest in new facilities, equipment, and processes, but
may hinder DODís ability to incentivize contractorsí performance and
control costs, especially in the absence of a competitive environment
or if DOD does not acquire access to technical data that can enable
DOD to select an alternative maintenance provider.
GAO was asked to evaluate (1) the extent to which DOD uses long-term
maintenance contracts, (2) DODís ability to select alternative
maintenance providers, and (3) how these contracts have been
structured to incentivize performance and manage cost. GAO reviewed a
nongeneralizable sample of 10 long-term contracts to illustrate
different maintenance approaches. GAO interviewed program officials
and reviewed contract documentation. GAO also reviewed information on
eight programs recently reviewed by DOD to determine how these
programs addressed technical data needs.
What GAO Found:
At the departmental level, neither the Department of Defense (DOD) nor
the individual military departments know the extent to which weapon
system programs rely on long-term maintenance contracts. DOD policy
requires DOD and the military departments to approve acquisition
strategies and lifecycle sustainment plans, which include information
on contractor support, but DOD officials reported that they do not
collect information on the use of long-term contracts. DODís limited
visibility over long-term maintenance contracts reflects broader DOD
challenges with managing services acquisition. GAOís past work has
identified the need for DOD to obtain better data on its contracted
services to enable it to make more strategic decisions. DOD is
considering a number of policy- and data-related initiatives that
could improve its knowledge of these contracts, but these efforts are
in the early stages of development.
Decisions made early in the acquisition process can limit DODís
ability to select alternative maintenance providers over the life
cycle of a weapon system program. Program officials believed that DOD
had the ability to select alternative service providers for half of
the contracts GAO reviewed, as DOD either had sufficient technical
data or there was an existing competitive environment. DOD officials
believed the lack of technical data, funding, or expertise would
hinder them from selecting alternative service providers on the other
contracts GAO reviewed. Recent legislation and DODís 2010 efficiency
initiatives emphasize the importance of technical data considerations.
GAO found that eight weapon systems that underwent DOD acquisition-
related reviews between October 2010 and October 2011 considered
technical data issues, but not all have determined the extent to which
they will acquire these data or the cost to do so.
Once the decision is made to use long-term contracts, DOD faces
choices on how to best incentivize contractor performance and manage
costs. GAO found that the 10 long-term maintenance contracts reviewed
varied in terms of the incentives employed and tools used to gain
insight into contractor costs. For example, GAO found that all 5
contracts with the longest durations, potentially ranging from 9 to 22
years, used monetary incentives such as award or incentive fees, or
contract term incentives that can extend the life of the contract by
several years. However, DOD and program officials expressed some
concerns about the lack of insight on contractorsí costs. In two
cases, program offices established fixed prices for the entire
potential length of the 9- and 15-year contracts without the ability
to renegotiate prices or obtain incurred cost data. In comparison to
the contracts with the longest durations, the five contracts GAO
reviewed with maximum lengths of 5 years made less use of incentives
or cost-control tools and generally did not have the ability to
renegotiate contract prices, but program officials believed that the
shorter-term nature of the contracts mitigated some of their risks.
DOD does not collect information concerning the effectiveness of the
various incentives or cost control tools used on long-term maintenance
contracts, but it has identified efforts made by individual programs
to improve acquisition of maintenance services. Developing lessons
learned on what incentives and cost-control tools work best would help
inform future acquisition strategies and reduce risk.
What GAO Recommends:
GAO recommends that DOD collect information on the extent to which DOD
uses long-term maintenance contracts and develop lessons learned
regarding the use of incentives and cost-control tools. DOD concurred
with each of the recommendations and indicated that it would develop
methodologies to implement them.
View [hyperlink, http://www.gao.gov/products/GAO-12-558]. For more
information, contact Belva M. Martin at (202) 512-4841 or
martinb@gao.gov or Cary Russell at (202) 512-5431 or russellc@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOD Does Not Know the Extent to Which It Relies on Long-term
Maintenance Contracts:
Early Acquisition Decisions Limit DOD's Ability to Select Alternative
Maintenance Providers:
Programs Use Different Approaches to Incentivize Performance and
Obtain Insights into Contractor Costs:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Selected Characteristics of Long-term Maintenance Contracts
Reviewed by GAO:
Table 2: Impact of Technical Data Access on Ability to Change
Maintenance Service Providers for the Contracts GAO Reviewed:
Table 3: Weapon System Programs' Plans to Acquire Technical Data
during Development and Production:
Table 4: Longer-term Contracts' Use of Incentives and Tools to Control
Costs:
Table 5: Program Offices' Use of Incentives and Tools to Control Costs
on Shorter Duration Maintenance Contracts GAO Reviewed:
Abbreviations:
USD(AT&L): Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics:
JSTARS: Joint Surveillance Target Attack Radar System:
DOD: Department of Defense:
FPDS-NG: Federal Procurement Data System-Next Generation:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 31, 2012:
The Honorable J. Randy Forbes:
Chairman:
The Honorable Madeleine Z. Bordallo:
Ranking Member:
Subcommittee on Readiness:
Committee on Armed Services:
House of Representatives:
The Department of Defense (DOD) spends billions of dollars each year
on operating and support costs for weapon systems, including for
maintenance, engineering support, and personnel. Such costs
historically account for approximately 70 percent of a weapon system's
total life-cycle cost.[Footnote 1] Among such expenses are those
associated with depot-level repair of weapon systems, which includes
overhaul, upgrades, and rebuilding of parts and assemblies. According
to a recent DOD report, the department spent approximately $33 billion
in fiscal year 2010 to maintain its weapon systems through both
government and commercial providers. In some instances, DOD may
determine that depot-level maintenance will be performed through a
contractor using long-term contracts for maintenance services that can
span more than a decade. DOD officials note that a long-term contract
can encourage contractors to invest in new facilities, equipment, and
processes, but may also hinder the government's ability to
appropriately incentivize the contractor's performance and control
costs, especially in the absence of a competitive environment or if
the government does not acquire access to the technical data needed to
maintain the weapon system.[Footnote 2]
In May 2011, GAO reported that DOD continues to face challenges that
could undermine competition of maintenance contracts, including
shortcomings in how programs' technical data rights requirements
necessary for competition are determined.[Footnote 3] Additionally,
GAO has previously reported on DOD's increased reliance on contractors
for maintenance and other logistics support for its weapon systems,
management challenges associated with the acquisition of major weapon
systems, and the department's lack of insight into costs associated
with depot maintenance and other weapon support contracts.[Footnote 4]
Consequently, given these issues and the long-term nature of certain
maintenance contracts, you requested that we review various aspects of
DOD's use of long-term contracts for maintaining its weapon systems.
To address this request, we evaluated (1) the extent to which DOD uses
long-term maintenance contracts to support major weapon system
programs, (2) DOD's ability to select alternative maintenance services
providers for its major weapon system programs, and (3) how long-term
maintenance contracts have been structured to incentivize contractors'
performance and manage contractor costs.
For the purposes of this report, we defined long-term maintenance
contracts as those with a potential period of performance of five
years or more that provide depot-level maintenance services or support
performance of maintenance functions. Further, this report focuses on
the policies and practices that pertain to major defense acquisition
programs.[Footnote 5] To determine the extent to which DOD uses long-
term maintenance contracts, GAO discussed with DOD and military
department officials the data DOD collects on maintenance approaches
and related contract information and reviewed various reports,
including Distribution of DOD Depot Maintenance Workload, as well as
DOD's analysis of Federal Procurement Data System-Next Generation
(FPDS-NG) data related to maintenance services.[Footnote 6] After
determining department-wide data concerning the use of such contracts
was unavailable, we worked with military department officials to
identify long-term maintenance contracts used by major weapon system
programs. Based on these discussions, we reviewed 10 long-term
contracts supporting seven major defense acquisition programs. We
selected these contracts to represent each of the three military
departments and to illustrate different maintenance approaches.
To determine the extent to which major weapon system programs could
select alternate maintenance services providers, we reviewed
acquisition plans and interviewed program officials to obtain their
insight on the factors that would hinder or facilitate the
department's ability to do so. We also interviewed program officials
and reviewed documents on eight major defense acquisition programs
identified by the Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics (USD(AT&L)) as having a major
acquisition review between October 2010 and October 2011 to determine
whether program officials had considered technical data rights in
their acquisition strategies or life-cycle sustainment plans submitted
as part of these reviews.
To determine how long-term maintenance contracts were structured to
incentivize performance and provide insight into costs, we reviewed
available acquisition plans, contractual information such as pricing
data and price negotiation memoranda, incentive plans, and performance
data and interviewed cognizant program officials for the long-term
contracts we reviewed. As part of this effort, we reviewed the program
offices' use of monetary incentives such as award and incentive fees,
performance bonuses, and downward price adjustments, as well as their
use of contract term incentives, including award terms and incentive
options, which can extend the contract's period of performance.
Further, to determine the extent to which programs gained insight into
contractor costs, we identified whether they had the ability to
renegotiate contract prices, obtained incurred cost data, or used cost-
based incentive metrics. Appendix I provides more detailed information
on our scope and methodology.
We conducted this performance audit from February 2011 through May
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
DOD spends billions of dollars annually to maintain complex weapon
systems including aircraft, ships, ground-based systems, missiles,
communications equipment, and other types of electronic equipment that
require regular and emergency maintenance to support national security
goals. Maintenance of this equipment is divided into three levels
corresponding to the extent and complexity of these repairs--depot-
level, intermediate, and organizational. DOD defines depot maintenance
as the highest level of maintenance and it generally refers to major
maintenance and repairs, such as overhauling, upgrading, or rebuilding
parts, assemblies, or subassemblies. This level of maintenance can
consist of repair to entire weapon systems, major assemblies that
comprise a system, or the components that make up those assemblies.
Depot maintenance also includes installation of system modifications
that extend the operational life of weapon systems. Such repairs and
overhauls have long been provided by DOD maintenance personnel,
private contractors, or a mixture of the two through public-private
partnerships performed at government-owned and private facilities.
Intermediate maintenance consists of repair capabilities possessed by
operating units and in-theater sustainment organizations that include
remove-and-replace operations for subcomponents, local manufacture,
and other repair capabilities. Organizational maintenance consists of
the tasks necessary for day-to-day operation including inspection and
servicing.
Several Policies Guide Decisions on Maintenance Approaches:
The department's overarching acquisition guidance, DOD Directive
5000.01, states that the program manager shall be the single point of
accountability for accomplishing program objectives for total life-
cycle systems management, including sustainment. DOD Instruction
5000.02, which provides additional DOD guidance for managing and
overseeing defense acquisition programs, requires that program
managers perform a core logistics analysis to support major
acquisition milestone reviews after the technology or system
development phase.[Footnote 7] Such logistics considerations, to
include those related to maintenance, are contained within the life-
cycle sustainment plan that was, until recently, reviewed as part of
the acquisition strategy for major weapon system programs. In April
2011, DOD directed that the life-cycle sustainment plan be reviewed
separately from the acquisition strategy and, in September 2011,
directed that those sustainment plans associated with certain major
weapon systems be approved by the Assistant Secretary of Defense for
Logistics and Materiel Readiness at all milestone decision points
during weapon system development and at the full-rate production
decision.[Footnote 8] Further, DOD has established a new template for
the plans' content to include the extent to which contractor services
will support maintenance.
DOD has issued instructions that provide guidance to the military
departments and program offices on defining maintenance requirements
and approaches. For example, DOD Directive 4151.18 requires that the
source of depot-level repair for major weapon systems be determined
during the weapon system's development.[Footnote 9] It also provides
instruction on determining if depot-level maintenance for a weapon
system will be performed at a government-owned and government-operated
(hereinafter referred to as "organic") depot, by a private-sector
contractor, or some combination of the two. Section 2466 of Title 10
of the U.S. Code places limitations, however, on contracted depot-
level maintenance of materiel. The statute provides that not more than
50 percent of funds made available in a fiscal year for depot-level
maintenance and repair may be used for contracted services. This is
known as the 50/50 requirement. DOD is also required to report
annually on past and projected workload allocations. DOD Directive
4151.18 requires that USD(AT&L) monitor compliance with the directive
and review the adequacy of DOD maintenance programs and resources.
Additionally, it requires DOD components develop tools and management
procedures to implement the content of the directive.[Footnote 10]
Additionally, DOD Instruction 4151.20 provides instruction for
determining "core" maintenance requirements as defined in Section 2464
of Title 10 of the U.S. Code.[Footnote 11] These core requirements are
considered essential for the national defense and require that DOD
maintain a logistics capability that is government-owned and
government-operated to ensure DOD can effectively respond to a
mobilization, national defense contingency situations, and other
emergency requirements in a timely manner. To ensure that life-cycle
sustainment planning is done early in a weapon system's development
phase, the National Defense Authorization Act for fiscal year 2012
revised the assessment of core maintenance requirements and directed
DOD to identify such requirements at acquisition milestones.[Footnote
12]
Recent Legislative and DOD Efforts To Enhance Competition:
In recent years, Congress and DOD have emphasized the need to maintain
competition throughout the life cycle of weapon system programs and
improve how the department acquires services. For example, Congress
passed the Weapon System Acquisition Reform Act of 2009, requiring DOD
to ensure competition or the option of competition throughout a weapon
system program's life cycle, in part, by requiring DOD to consider
purchase of complete technical data packages when cost-effective.
[Footnote 13] In May 2011, however, we reported that DOD continues to
face challenges that could undermine competition of maintenance
contracts, including shortcomings in how programs' technical data
rights requirements that are necessary for competition are
determined.[Footnote 14] We recommended, and DOD agreed, that the
department should update its acquisition and procurement policies to
clarify requirements for documenting technical data requirements and
to issue instructions for program managers to use when conducting
analyses used to determine technical data rights needs for a weapon
program.[Footnote 15]
More recently, in September 2010, as part of DOD's efficiencies
initiative, USD(AT&L) issued guidance intended to improve
affordability and cost control, competition, and management of
services acquisitions, among other areas.[Footnote 16] Among the
specific actions called for are taking steps to improve insight into
contract costs, increasing competition in services contracting, and
setting rules for the acquisition of technical data rights. For
example, DOD's September 2010 guidance noted that military departments
and DOD components will be required to review the length of time that
services contracts remain in effect before recompetition, noting that
single-award services contracts should be limited to 3 years unless
justified by the senior manager for services. It also notes that
certain other types of services contracts, such as those for
logistics, may not be appropriate for such limits. Subsequently, DOD
issued guidance in November 2010 requiring program managers for all
acquisition programs to (1) conduct a business-case analysis that
outlines the technical data rights the government will pursue to
ensure competition and (2) include the results of this analysis in
acquisition strategies at a program's entrance into the engineering
and manufacturing development phase of the acquisition.[Footnote 17]
DOD Does Not Know the Extent to Which It Relies on Long-term
Maintenance Contracts:
At the departmental level, neither DOD nor the individual military
departments know the extent to which weapon system programs rely on
long-term maintenance contracts. This includes the most basic
information--how many of such contracts are currently in use. DOD does
not collect or maintain such information during its reviews of
acquisition strategies or life-cycle sustainment plans, nor do
existing data collection systems provide the type of information
needed to do so. Consequently, we worked with the military departments
to identify a number of long-term maintenance contracts and selected
10 contracts supporting seven major weapon systems for detailed
review. We found that these contracts varied widely in terms of
breadth of requirements, potential period of performance, and value.
For example, our work found that these contracts could extend up to 22
years if the contractor meets performance criteria and earns award
terms. These contracts also constituted a significant investment for
the government. Program offices reported obligations of over $18.4
billion on these 10 contracts through the end of fiscal year 2011. In
that fiscal year alone, programs obligated nearly $1.7 billion on the
10 contracts we reviewed.
Lack Of Data on Long-Term Maintenance Contracts Reflect Broader DOD
Challenges with Managing Services Acquisition:
DOD was unable to provide us a list of ongoing long-term maintenance
contracts. Further, DOD officials noted that existing reports and data
collection systems do not provide the department information on the
use of long-term maintenance contracts. For example, USD(AT&L) reports
to Congress annually on the percentage of funds expended during the
preceding fiscal year for public and private maintenance and repair
activities, and project funding requirements for the current and
ensuing fiscal year.[Footnote 18] However, USD(AT&L) is not required
to include information on the distribution of these contracts among
the department's weapon system programs, the total number of contracts
used, or the length of performance of these contracts in these
reports. Similarly, USD(AT&L) officials noted that while they have
used FPDS-NG to perform contract spend analysis for various categories
of services, including maintenance services, FPDS-NG does not record
the potential period of performance for all contracts, including those
that use incentives that may extend the life of the contract.
Additionally, while some contract actions associated with maintenance
are coded as such in FPDS-NG, our analysis found that other
maintenance-related activities may be reported as management support,
logistics support, and system engineering services. Further, we found
that the Defense Acquisition Management Information Retrieval System,
DOD's web-based data system that tracks programmatic information on
major defense acquisition programs, did not contain accurate
information on what major weapon systems were currently fielded and
are being maintained.
DOD's limited visibility over long-term maintenance contracts reflects
broader DOD challenges with managing services acquisition. Over the
past decade, our work has identified the need for DOD to obtain better
data on its contracted services to enable it to make more strategic
decisions. For example, in 2006, we reported that DOD's approach to
managing services acquisition tended to be reactive and had not fully
addressed the key factors for success at either a strategic or
transactional level.[Footnote 19] The strategic level is where the
enterprise sets a direction for what it needs, captures knowledge to
make informed management decisions, ensures departmentwide goals and
objectives are achieved, and assesses the resources it has to achieve
desired outcomes. The strategic level sets the context for the
transactional level, where the focus is on making sound decisions on
individual service acquisition using valid and well-defined
requirements, appropriate business arrangements, and adequate
management of contractor performance.
Our prior work has shown, however, that while DOD obtains insight into
individual programs through various program reviews, DOD does not
collect or maintain that information to inform strategic decisions.
For example:
* In response to congressional direction, DOD and the military
departments have established procedures for reviewing, approving and
monitoring services acquisitions, including those for maintenance.
Further, since 2006, all proposed services acquisitions with a value
estimated at more than $1 billion or designated as "special interest"
are reviewed by USD(AT&L), while military department or other defense
component officials review acquisition strategies for those below this
threshold. Contract requirements, risks, and business arrangements are
among the items included in reviewed acquisition strategies. Though
these reviews take place, DOD does not collect or aggregate the
information they produce to provide department-wide insight into the
use of long-term maintenance contracts.
* Additionally, to improve DOD's services acquisition process,
USD(AT&L) implemented an independent management review, or peer
review, process for its service contracts in 2008.[Footnote 20]
Occurring after approval of the acquisition strategy, these peer
reviews are conducted prior to and after award of services contracts,
and are published to facilitate cross-sharing of best practices and
lessons learned on various contracting issues, including the use of
competition, contract structure and type, definition of contract
requirements, and cost or pricing methods. Each of these reviews
provides for the discussion of issues related to contracting strategy,
but DOD officials noted that they do not collect or maintain
information on what type of contracting approach was used to acquire
all services that support DOD weapon systems. Further, while DOD
collects and makes available lessons learned from these reviews in
areas such as source selection and use of incentives, DOD officials
stated that the process has not resulted in lessons learned or best
practices specific to the use of long-term maintenance contracts.
* Similarly, DOD policy and guidance require USD(AT&L) and military
department senior acquisition executives approve acquisition
strategies and life-cycle sustainment plans during program milestone
reviews. Each of these documents is to include information on the
proposed acquisition approach, including the use of contractor
support. Our discussions with USD(AT&L) and representatives from the
military department offices responsible for reviewing these plans
found these offices do not maintain information on the extent to which
long-term maintenance contracts are used by weapon system programs.
Long-Term Maintenance Contracts GAO Reviewed Had Widely Varied
Characteristics:
In the absence of department-wide data on the use of long-term
maintenance contracts, we selected 10 long-term maintenance contracts
that supported seven major weapon systems. We found that these
contracts varied widely in terms of breadth of requirements, potential
period of performance, and value.[Footnote 21] For example, the
contracts we reviewed included those that supported maintenance of an
entire weapon system platform such the Air Force's Joint Surveillance
Target Attack Radar System (JSTARS) to more specific depot-level
maintenance support activities for system components, such as the
Navy's T-45 engine contract. Table 1 shows selected characteristics of
the 10 contracts we reviewed.
Table 1: Selected Characteristics of Long-term Maintenance Contracts
Reviewed by GAO:
Military department/system: Air Force; C-130 transport aircraft;
Component/platform supported by long-term contract: C-130J airframe;
Contract type and incentives[A]: Firm-fixed price contract/award fee;
Potential contract term: 10 years: 2-year base + 3-year option + 3-
year option + 2-year option;
Award year: 2006;
Obligations through September 30, 2011: $0.3 billion.
Military department/system: Air Force; C-130 transport aircraft;
Component/platform supported by long-term contract: C-130J engine;
Contract type and incentives[A]: Firm-fixed price requirements
contract/incentive fee;
Potential contract term: 9 years:1-year base + eight 1-year options;
Award year: 2007;
Obligations through September 30, 2011: $0.5 billion.
Military department/system: Air Force; C-130 transport aircraft;
Component/platform supported by long-term contract: T56 engine;
Contract type and incentives[A]: Fixed-price-award-term requirements
contract with economic price adjustment/award term;
Potential contract term: 15 years: 7-year base + 8 possible award term
years;
Award year: 1999;
Obligations through September 30, 2011: $13.9 billion.
Military department/system: Air Force; JSTARS surveillance aircraft;
Component/platform supported by long-term contract: Platform;
Contract type and incentives[A]: Cost-plus award fee contract/award
term;
Potential contract term: 22 years: 6-year base + 16 possible award
term years;
Award year: 2000;
Obligations through September 30, 2011: $1.9 billion.
Military department/system: Air Force; KC-10 tanker aircraft;
Component/platform supported by long-term contract: Platform;
Contract type and incentives[A]: Firm-fixed price indefinite
delivery/indefinite quantity contract/incentive option years;
Potential contract term: 9 years: 2-year base + 2-year option + 2 year
option + 3 possible incentive option years;
Award year: 2009;
Obligations through September 30, 2011: $0.8 billion.
Military department/system: Army; AH-64 helicopter;
Component/platform supported by long-term contract: Airframe[B];
Contract type and incentives[A]: Firm-fixed price contract;
Potential contract term: 5 years: 1-year base + four 1-year options;
Award year: 2010;
Obligations through September 30, 2011: $0.2 billion.
Military department/system: Army; CH-47 helicopter;
Component/platform supported by long-term contract: Engine;
Contract type and incentives[A]: Firm-fixed price contract/incentive
fee;
Potential contract term: 5 years: 1-year base + four 1-year options;
Award year: 2011;
Obligations through September 30, 2011: less than $0.1 billion.
Military department/system: Navy; MH-60 helicopter;
Component/platform supported by long-term contract: Airframe and
avionics;
Contract type and incentives[A]: Firm-fixed price requirements
contract;
Potential contract term: 4-year base with no options[C];
Award year: 2011;
Obligations through September 30, 2011: $0.2 billion.
Military department/system: Navy; T-45 trainer aircraft;
Component/platform supported by long-term contract: Airframe;
Contract type and incentives[A]: Firm-fixed price contract;
Potential contract term: 5 years: 1-year base + four 1-year options;
Award year: 2008;
Obligations through September 30, 2011: $0.3 billion.
Military department/system: Navy; T-45 trainer aircraft;
Component/platform supported by long-term contract: Engine;
Contract type and incentives[A]: Firm-fixed price requirements
contract;
Potential contract term: 5 years: 1-year base + four 1-year options;
Award year: 2008;
Obligations through September 30, 2011: $0.2 billion.
Source: GAO analysis of DOD data.
[A] Contract type and incentives represent the predominant type of
contract vehicle and incentives used. A requirements contract provides
for filling all purchase requirements of a government activity for
supplies or services during the contract period from a single
contractor. Indefinite delivery, indefinite quantity contracts provide
for an indefinite quantity of supplies or services for a fixed time. A
firm-fixed price contract provides for a price that is not subject to
any adjustment on the basis of the contractor's cost experience in
performing the contract. A fixed-price contract with economic price
adjustment provides for upward and downward revision of the stated
contract price upon the occurrence of specified contingencies. Cost-
plus-award-fee contract is a cost-reimbursement contract that provides
for a fee consisting of a base amount fixed at inception of the
contract and an award amount based upon a judgmental evaluation by the
government. Federal Acquisition Regulation Part 16.
[B] Contract also provides for maintenance of the CH-47 airframe.
[C] According to program documentation, initial acquisition strategy
called for a 5-year contract. Pricing for the current contract was
negotiated together with the preceding 1-year bridge contract for a
total 5-year pricing negotiation.
[End of table]
In addition to maintenance activities, the contracts we reviewed also
provide supply chain management, technical data management, training,
equipment configuration management, and engineering support, among
other requirements. Further, we found that long-term maintenance
contracts could extend up to 22 years if the contractor meets
performance criteria and earns award terms. Lastly, we found that
these contracts constituted a significant investment for the
government, as program offices reported obligations of over $18.4
billion on these contracts through the end of fiscal year 2011. In
that fiscal year alone, programs obligated nearly $1.7 billion on the
10 contracts we reviewed.
DOD officials noted that although long-term contracts can encourage
contractors to invest in new facilities, equipment, and processes to
support depot-level maintenance, such contracts may hinder the
government's ability to appropriately incentivize the contractor's
performance and control costs. DOD officials noted that the department
is pursuing a number of initiatives that could potentially improve
DOD's insight into long-term maintenance contracts and their
management. For example, USD(AT&L) officials pointed out that the
department is creating a standalone instruction for service
acquisitions, based on DOD Instruction 5000.02. Although the
instruction is in the early stages of development, USD(AT&L) officials
said that it will provide more detailed guidance for the acquisition
of specific services and reflect issues such as duration that have
been raised in recent DOD guidance. USD(AT&L) officials said that the
department is currently considering expanding or updating the Defense
Acquisition Management Information Retrieval system to retain contract
information for major service contracts, such as contractors'
performance histories, contract lengths, contract types, and
incentives used for these services.
Early Acquisition Decisions Limit DOD's Ability to Select Alternative
Maintenance Providers:
Decisions made early in the acquisition process can limit DOD's
ability to select alternative maintenance providers over the life
cycle of a weapon system program. Program officials believed they
could select an alternative service provider in the future for 5 of
the 10 contracts we reviewed, but the degree to which the government
obtained access to technical data would be an obstacle in doing so for
the other half. DOD has updated its policies to emphasize determining
technical data needs earlier in the acquisition life cycle.
Information we collected on eight weapon system programs in
development or early stages of production that were reviewed by
USD(AT&L) between October 2010 and October 2011 indicated that at
least half have acquired or plan to acquire sufficient technical data
to compete maintenance services or to perform maintenance with organic
depot personnel should the need arise. The programs, however, had yet
to determine the extent to which they will acquire these data or the
cost to do so.
Some Major Weapon System Programs Could Select an Alternative
Maintenance Service Provider but Others Faced Obstacles:
DOD program officials said that decisions made early in the
acquisition cycle, especially with regard to acquiring technical data,
may hinder the department's ability to change maintenance service
providers for depot-level activities. As we reported in May 2011,
technical data can enable the government to complete maintenance work
in-house, as well as to competitively award contracts for the
acquisition and sustainment of a weapon system.[Footnote 22] More
recently, we reported that for contracts pertaining to DOD weapon
programs, which can involve products as well as support services, the
lack of access to proprietary technical data and a heavy reliance on
specific contractors for expertise limits or even precludes the
possibility of competition. Even when access to technical data is not
an issue, the government may have little choice other than to rely on
the contractors that were the original equipment manufacturers, and
that, in some cases, designed and developed the weapon
system.[Footnote 23] Of the ten contracts we reviewed only three were
competitively awarded. Table 2 summarizes the impact of technical data
access on DOD programs' ability to select alternate services providers
for maintenance on the contracts we reviewed.
Table 2: Impact of Technical Data Access on Ability to Change
Maintenance Service Providers for the Contracts GAO Reviewed:
Military department/system: Air Force; C-130;
Component/platform supported by long-term contract: C-130J airframe;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data.
Military department/system: Air Force; C-130;
Component/platform supported by long-term contract: C-130J engine;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data.
Military department/system: Air Force; C-130;
Component/platform supported by long-term contract: T56 engine;
Competed contract? Yes/No: Yes;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: Yes;
Reason: Sufficient access to technical data; engine maintenance was
once done organically;
Ability to recompete maintenance contracts?
Yes/No: Yes;
Reason: Access to technical data allows the program to recompete the
current contract.
Military department/system: Air Force; JSTARS;
Component/platform supported by long-term contract: Platform;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data.
Military department/system: Air Force; KC-10;
Component/platform supported by long-term contract: Platform;
Competed contract? Yes/No: Yes;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: Yes;
Reason: The aircraft is commercially derived and there is a
competitive environment.
Military department/system: Army; AH-64;
Component/platform supported by long-term contract: Airframe[A];
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: Yes;
Reason: Sufficient access to technical data;
the airframe maintenance is done organically with contractor support;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data for recompetition.
Military department/system: Army; CH-47;
Component/platform supported by long-term contract: Engine;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: Yes;
Reason: Sufficient access to technical data; engine maintenance is
done organically with contractor support;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data for recompetition.
Military department/system: Navy; MH-60;
Component/platform supported by long-term contract: Airframe and
avionics;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data.
Military department/system: Navy; T-45;
Component/platform supported by long-term contract: Airframe;
Competed contract? Yes/No: Yes;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: Yes;
Reason: Sufficient amount of technical data procured to recompete
contract for this commercially derived aircraft.
Military department/system: Navy; T-45;
Component/platform supported by long-term contract: Engine;
Competed contract? Yes/No: No;
Ability to transition contracted maintenance work to an organic depot?
Yes/No: No;
Reason: Insufficient access to technical data;
Ability to recompete maintenance contracts?
Yes/No: No;
Reason: Insufficient access to technical data.
Source: GAO analysis of DOD data.
[A] Contract also provides for maintenance of the CH-47 airframe.
[End of table]
DOD acquired technical data sufficient to potentially select an
alternative service provider--either by transitioning contracted
maintenance work to an organic depot or recompeting maintenance
contracts--for 5 of the 10 maintenance contracts we reviewed. Three of
these programs had sufficient access to technical data to perform
maintenance services organically. For example,
* Depot maintenance for the AH-64 and CH-47 helicopter airframe
components was already performed organically at the Corpus Christi
Army Depot prior to the use of contractor support. However, the
program determined that contractor support could improve its
maintenance practices and the availability of components. While
government personnel continue to do all maintenance work on airframe
components, since 2004 the Army has used a contractor to provide parts
integration, technical engineering and logistics support which has
significantly increased system availability.
* As a result of a 1995 Base Realignment and Closure decision, the
military depot that maintained the T56 engines for the C-130 program
was closed. To mitigate the impact of the closing on the local
community and employees, the maintenance workload was performed by the
private sector at the same location. The Air Force used a public-
private competition--an opportunity for the public and private
offerors to compete for the work--to determine the most cost-effective
source of repair, and the T56 engine maintenance is now provided by a
contractor.[Footnote 24]
Two other programs reported they are able to recompete maintenance
services contracts even though neither program purchased complete
technical data associated with the weapon system. According to program
officials, they could compete contracts for maintenance services
either because they acquired sufficient technical data for specific
portions of the aircraft or because there was a competitive
environment for maintenance services for commercially-derived systems.
The latter are weapon systems that were adapted for military use from
a commercial item as opposed to weapon systems developed for the
military. For example,
* The Navy's T-45 trainer aircraft program was designated to be
maintained by contractors for the life of the program, as it is not a
core asset and there was a competitive environment with multiple
vendors to provide maintenance support for this commercially available
aircraft. During development, the Navy purchased technical data for
DOD-specific aspects of the plane's airframe design, allowing the
program office to recompete maintenance contracts throughout the life
cycle of the system. Specifically, after the program split its system-
level maintenance contract into separate engine and airframe
contracts, it was able to leverage its access to technical data to
competitively award the airframe contract. When the airframe contract
was recompeted in 2007, five vendors submitted capability statements.
Program officials told us that they expect a similar industry response
when the contract is recompeted again this year.
* Similarly, for the KC-10 aircraft, the aircraft is based on a
commercial design and uses contractor logistics support for
maintenance services. The Air Force has competitively awarded five
maintenance contracts since the KC-10 was acquired in 1978. The last
competition occurred in 2010 and there were two proposals which
resulted in the selection of a new contractor.
For 5 of the 10 contracts, however, programs reported they could
neither transition contracted maintenance services to an organic depot
nor recompete the contract due to insufficient access to technical
data as well as factors such as insufficient funding, staffing, and
expertise in some cases. For example,
* According to JSTARS program officials, the Air Force currently
cannot convert contracted maintenance work to an organic depot or
recompete the work because it has insufficient access to technical
data for the aircraft's unique systems and equipment. Prior to
awarding the current contract, the JSTARS program utilized 17
sustainment contracts with the government managing these contracts and
performing some portions of maintenance organically. However, in
September 2000, the Air Force noncompetitively awarded a contract so
that a single contractor would be responsible for sustainment
activities that were previously performed under contracts or by
government personnel. Program officials said that when the Air Force
took on the more limited role of oversight of the prime contractor,
program staffing and expertise were reduced significantly. They added
that, as a result, the program office currently lacks the engineers,
equipment specialists, inventory managers, and other staff and skills
needed to manage all sustainment activities if the requirements
included in the current contract were to be performed by multiple
service providers.
* Though previous models of the Air Force's C-130 fleet are maintained
organically, contractors developed the C-130J model (both the airframe
and engine) as a commercial item and it was acquired by the Air Force
without related technical data. As a result, the program office must
acquire maintenance services for all components unique to this model
of the aircraft from the original equipment manufacturers through
contracts. Program officials noted that there is a requirement to
eventually bring the aircraft maintenance to organic depots, but noted
that even if it were able to acquire the necessary technical data, the
program office would need substantial funding to develop capabilities
at the organic depots.
Technical Data Rights Need to Be Considered Early in the Acquisition
Process:
Recent acquisition reforms such as the Weapon System Acquisition
Reform Act of 2009 and DOD's recent initiatives seeking greater
efficiency and cost savings in acquisitions have put greater emphasis
on obtaining technical data rights and on maintaining competition
throughout the life cycle of weapon systems. For example, Congress has
required that DOD issue comprehensive guidance on life-cycle
management, develop and implement product support strategies, and
appoint product support managers for major weapon systems, while DOD's
September 2010 efficiency initiatives memorandum includes a
requirement that each military department set rules for acquisition of
technical data rights as part of a plan to improve competition. DOD
has taken a number of actions, including revising its acquisition
policy to ensure that technical data requirements are considered
during the acquisition process at key milestones. More recently, DOD
has drafted guidance for developing open systems architecture
contracts. This guidance will provide additional information to
program managers regarding purchase of technical data and planning for
an open systems architecture that may allow for increased flexibility
in maintenance and purchase of such data.
Data we collected on eight DOD weapon systems currently in development
or early stages of production that were reviewed by USD(AT&L) between
October 2010 and October 2011 as part of an acquisition review
indicates that the programs have considered maintenance and other
sustainment issues when making decisions regarding technical data
needs. Table 3 summarizes these eight programs' plans to acquire
access to technical data rights.
Table 3: Weapon System Programs' Plans to Acquire Technical Data
during Development and Production:
Military department: Air Force;
Program: MQ-9 Reaper unmanned aircraft system;
Technical data decision[A]: Program officials said the Air Force is
assessing the technical data required to maintain the weapon system at
the component level.
Military department: Army;
Program: AH-64 Apache Block III helicopter;
Technical data decision[A]: Army officials stated that the program
will leverage the existing maintenance arrangement for previous
variants of the aircraft and assess what technical data are necessary
to maintain the Block III-unique components.
Military department: Army;
Program: XM982 Excalibur guided artillery projectile;
Technical data decision[A]: The program reports that it is working
with the contractor to ensure negotiated technical data are received,
including those for certain proprietary technologies.
Military department: Army;
Program: MQ-1C Gray Eagle unmanned aircraft system;
Technical data decision[A]: According to Army officials, the Army will
assess the technical data required for specific system components.
Military department: Navy;
Program: AIM 9X Sidewinder air-to-air missile;
Technical data decision[A]: Navy officials stated that the Navy is
pursuing unlimited data rights for this new missile variant.
Military department: Navy;
Program: E2D AHE Advanced Hawkeye aircraft;
Technical data decision[A]: Navy officials stated that the Navy plans
to obtain access to technical data as it is being developed for
components unique to this variant, and will take possession of this
data at the time the last aircraft is delivered.
Military department: Navy;
Program: Littoral Combat Ship surface combatant;
Technical data decision[A]: The Navy's acquisition strategy states
that technical data will be acquired to support organic and private
support to the system. According to officials, the department
purchased government purpose rights and unlimited technical data
rights for over 95 percent of the sea frame and the interface of the
mission package components.
Military department: Navy;
Program: SSBN(X) Ohio-class replacement ballistic missile submarine;
Technical data decision[A]: Program officials said the Navy plans to
acquire unlimited technical data rights to support depot maintenance
at government facilities.
Source: GAO analysis of DOD data.
[A] DOD may obtain different levels of rights to technical data
including unlimited rights, government-purpose rights, and limited
rights. If DOD obtains unlimited rights, it may provide the data to
anyone for any reason. However, if DOD obtains government-purpose
rights, it may provide the data to third-party contractors only for
activities in which DOD is involved, including competitive
reprocurement but not including commercial purposes. If DOD obtains
limited rights, it may only use the data internally and may provide
the data to third parties in a limited number of circumstances.
[End of table]
For the eight programs we reviewed, at least four have acquired or
plan to acquire sufficient data to compete maintenance services or to
perform maintenance with organic depot personnel while others had yet
to determine the extent to which they will acquire these data or the
cost to do so. For example:
* The Navy acquired government purpose rights and unlimited technical
data rights for over 95 percent of major components for the Littoral
Combat Ship, according to program officials.[Footnote 25] They said
that most of the depot-level maintenance on the Littoral Combat Ship
is expected to be performed by the private sector, and the Navy
reports that competitive environment should enhance the ability of the
Navy to control life-cycle sustainment costs.
* The Air Force has begun to analyze components on the MQ-9 aircraft
and to determine what technical data is required to maintain the
aircraft, according to program officials. They told us they are
performing a business case analysis that will determine if technical
data should be acquired for approximately 600 aircraft parts and major
air frame components, but only a small percentage of these components
have been assessed through this process to date.
* The Army will assess the technical data needs to maintain specific
system components for components of the MQ-1C Gray Eagle as a means of
retaining flexibility of maintenance options during sustainment.
According to Army officials, the sustainment plan calls for the
current contracting arrangement to transition to a public-private
partnership in the future.
We previously reported that DOD program managers often opt to spend
limited acquisition dollars on increased weapon system capability
rather than on acquiring the rights to technical data, thus limiting
their flexibility to perform maintenance work in house or to support
the development of an alternative source should contractual
arrangements fail.[Footnote 26] Unless DOD assesses and secures its
rights for the use of technical data early in the weapon system
acquisition process when it has the greatest leverage to negotiate,
DOD may face later challenges in developing sustainment plans or
changing these plans as necessary over the life cycle of its weapon
systems. Delaying action in acquiring technical data rights can make
these data cost-prohibitive or difficult to obtain later in a weapon
system's life cycle.
Programs Use Different Approaches to Incentivize Performance and
Obtain Insights into Contractor Costs:
Once the decision is made to use long-term contracts, DOD faces
choices on how to best incentivize contractor performance and manage
costs. Of the 10 contacts we reviewed, we found that DOD programs that
used contracts extending longer than 5 years made frequent use of
incentives to motivate performance and tools that provide insight into
and control of costs. Program officials acknowledged, however, that in
some instances incentive structures needed to be periodically revised
to better incentivize contractor performance and they may not have
sufficient insight on contractor costs. Program offices using
contracts lasting 5 years, on the other hand, made less use of
incentives and generally did not have the ability to renegotiate
contract prices, but believed that the shorter-term nature of the
contracts mitigated some of their risks. Further, program offices now
obtain incurred cost data for two contracts, which they expect will
help in the negotiation of better contract prices. The various
contract lengths, incentives and cost-control tools across the
programs we reviewed reflects the differences of each acquisition and
the mission-specific maintenance approaches taken to support each
weapon system, but the department has not collected information on
their effectiveness on long-term maintenance contracts.
Programs with Longer-Term Contracts Used Different Incentives and
Tools to Provide Visibility on Costs:
Of the programs we reviewed, we found that the Air Force awarded five
relatively longer-term contracts--between 9 and 22 years--that
incentivized contractor performance and attempted to gain insight into
and control costs in various ways. All five of these contracts used
some combination of monetary or contract term incentives to encourage
contractor performance. These programs varied, however, in terms of
the approaches used to gain insights into the contractors' costs. For
example, the JSTARS program used cost-based incentive metrics,
scheduled specific opportunities to renegotiate the contract's price,
and received incurred cost data. In contrast, the contract to maintain
the C-130's T56 engine did not use any of these approaches to gain
cost insight. Table 4 summarizes the incentives and tools used to gain
cost insight and cost control.
Table 4: Longer-term Contracts' Use of Incentives and Tools to Control
Costs:
Military department/contract: Air Force:
Military department/contract: JSTARS;
Potential contract length: 22 years;
Monetary incentive: [Check];
Contract-term incentive: [Check];
Cost-based incentive metric: [Check];
Scheduled price renegotiation: [Check];
Incurred cost data: [Check].
Military department/contract: C-130 T56 engine;
Potential contract length: 15 years;
Monetary incentive: [Empty];
Contract-term incentive: [Check];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Empty].
Military department/contract: C-130J airframe;
Potential contract length: 10 years;
Monetary incentive: [Check];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Check];
Incurred cost data: [Check].
Military department/contract: C-130J engine;
Potential contract length: 9 years;
Monetary incentive: [Check];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Check];
Incurred cost data: [Empty].
Military department/contract: KC-10;
Potential contract length: 9 years;
Monetary incentive: [Empty];
Contract-term incentive: [Check];
Cost-based incentive metric: [Check];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Empty].
Source: GAO analysis of DOD data.
[End of table]
Program offices can use incentives to motivate contractors to provide
exceptional levels of contract performance. Three longer-term
contracts we reviewed include monetary incentives in the form of an
award fee or an incentive fee, while three contracts use contract term
incentives where a point system is used to award additional contract
years. Program officials acknowledged that the incentives needed to be
adjusted at times. For example, the JSTARS program uses an award fee
incentive to motivate short-term contractor performance and an award
term incentive to motivate the contractor's long-term performance.
Over the course of the JSTARS contract, the contractor has earned
nearly all the available award fee and award term years despite some
serious performance issues in 2009. In this case, the Air Force
identified several serious maintenance failures, including the
presence of foreign objects in engine filters and aircraft structural
damage resulting from maintenance errors, that were caused by the
JSTARS contractor and which could have resulted in serious personal
injury and loss of aircraft. Because the incentive structure
encompasses the broad range of responsibilities assigned to the
contractor, the contractor still earned most of that evaluation
period's available fee and enough award term points to earn another
year of contractor performance. The fee-determining official noted
that if it were possible, he would have given the contractor a much
lower award fee and rating. While the failures were reflected in the
award fee evaluation under three performance metrics, the contractor's
aggregate performance against the remaining metrics allowed it to earn
90 percent of the eligible fee for this 2009 evaluation period. The
JSTARS program subsequently amended its award fee plan to make the
contractor ineligible for 40 percent of the award fee if its
performance caused or contributed to a major accident. The contractor
has earned at least 95 percent of the available award fee for every
other evaluation period since the contract was awarded in 2000.
Program offices structured contract term incentives differently, which
provided DOD different degrees of flexibility to award additional
years of performance. For example, the award term plans for the JSTARS
and C-130 T56 engine contracts we reviewed guarantee additional years
of work if contractors meet or exceed incentive metrics. Both the
JSTARS and C-130 T56 engine contractors have earned the maximum number
of possible award term years. Conversely, the current incentive option
offered by the KC-10 program differs from the award terms used by the
JSTARS or C-130 T56 contracts in key respects. The KC-10 program's
incentive includes "must-meet" metrics and a high degree of government
discretion in awarding the additional incentive year. For example,
even if the contractor meets all incentive metrics and earns the
maximum available number of points needed to be considered for an
additional incentive year, the program office can still decline to
award the additional year. Additionally, if the contractor does not
meet the standard set for any "must-meet" metric, it will not receive
an incentive year. By structuring the incentive in this way, the
program office mitigates the risk of the contractor earning incentives
despite unsatisfactory performance, as in the previous JSTARS example.
According to KC-10 officials, the contactor would not earn its first
available incentive year with an approximate contract value of $450
million because it failed to provide continuous support for the
initiation of global tanker support activities, a "must-meet" metric,
among other performance shortcomings.
Some of the programs that use longer-term contracts adjusted incentive
metrics to influence contractor performance in areas needing
improvement. For example, C-130J program officials said that since
awarding the airframe maintenance contract in 2006, they gradually
added more incentive metrics to the airframe contract's award fee plan
to incentivize contractor performance in other areas. After the
contractor improved performance in providing engineering services, the
program office added an incentive metric to improve the contractor's
performance for supply chain management.
The programs using the five longer-term contracts we reviewed also use
to varying degrees different tools to gain insight into and control
costs over the term of the contracts, as illustrated by the following
examples.
* The JSTARS cost-type contract was awarded on a non-competitive basis
to the system's original equipment manufacturer and the contractor
bears little risk under this long-term arrangement, but the program
office has taken measures to obtain insights into and control the
contractor's costs. The program office used the incurred cost data it
receives under the cost-type contract to help renegotiate contract
prices during triennial reviews.[Footnote 27] Additionally, the
program uses cost-based incentive metrics to evaluate performance for
award fee and award term determinations. For example, under the terms
of the program's January 2012 award fee plan, 10 percent of the
contractor's award fee is determined by tracking cost performance
against contract estimates. This same metric is used to represent 10
percent of award term determinations. In addition, cost containment is
also evaluated as part of a weapon system improvement metric that
accounts for 37 percent of award term determinations.
* The C-130J program structured its potentially 10-year airframe and 9-
year engine maintenance firm-fixed price contracts so that prices
would be renegotiated at certain points during the contracts'
durations. For example, the program office receives incurred cost data
for the airframe contract, and has renegotiated prices three times
since the contract was awarded in 2006, with another renegotiation
scheduled for January 2014. Program officials said that receiving
incurred cost data helped them negotiate a 13 percent reduction in
total contract costs during the last scheduled price renegotiation in
January 2012. Program officials told us they can also gain insight
into cost baselines through regular contractor performance monitoring
and evaluation. For example, according to officials, the contractor
supporting airframe maintenance used a new system to track parts that
allowed for better utilization of spare parts and led to a decrease in
hours needed to perform the contract requirement. Program officials
were able to negotiate a lower price for that contract requirement
during the next scheduled price negotiation.
* In contrast, neither the C-130 T56 engine contract nor the KC-10
program scheduled price renegotiations despite establishing firm-fixed
prices for the entire potential length of the 15-and 9-year life of
the respective contracts. For example, the C-130 T56 engine contract
has prices fixed for the entire 15-year potential term of the contract
with adjustments made for changes in best estimated quantities and for
economic adjustments. Program officials expressed concern over their
lack of insight into the contractor's incurred costs and added that
having such information, along with scheduled price renegotiations at
the 5-year and 10-year points in the contract, would likely have been
helpful in controlling maintenance costs. While KC-10 program
officials cited the benefit of competition to drive down prices for
maintenance services, USD(AT&L) officials indicated that proposed
contracts reflecting a similar approach, where prices for the entire
duration of a long-term contract are priced at award, would be
reviewed carefully to ensure that the government's interests were
adequately protected.
Programs with Shorter-Term Contracts Tended Not to Use Incentives or
Price Renegotiation Techniques:
The Army and Navy programs we reviewed used contracts with a maximum
length of five years and generally did not make as frequent use of
incentives or cost-control tools as programs using longer contracts.
Army and Navy program officials indicated that they would prefer to
use longer contracts in the future to enable contractors to invest in
support infrastructure and improvements. Table summarizes the
incentives and tools used for cost insight and cost control.
Table 5: Program Offices' Use of Incentives and Tools to Control Costs
on Shorter Duration Maintenance Contracts GAO Reviewed:
Military department/contract: Army; AH-64 and CH-47 airframes;
Potential contract length: 5 years;
Monetary incentive: [Empty];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Check];
Incurred cost data: [Check].
Military department/contract: Army; CH-47 engine;
Potential contract length: 5 years;
Monetary incentive: [Check];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Empty].
Military department/contract: Navy; T-45 airframe;
Potential contract length: 5 years;
Monetary incentive: [Check];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Empty].
Military department/contract: Navy; T-45 engine;
Potential contract length: 5 years;
Monetary incentive: [Empty];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Empty].
Military department/contract: Navy; MH-60;
Potential contract length: 4 years[A];
Monetary incentive: [Check];
Contract-term incentive: [Empty];
Cost-based incentive metric: [Empty];
Scheduled price renegotiation: [Empty];
Incurred cost data: [Check].
Source: GAO analysis of DOD data.
[A] According to program documentation, the initial acquisition
strategy called for a 5-year contract. Due to delays in contract award
the current contract is for only 4 years.
[End of table]
Across the five contracts with a maximum length of five years, three
used monetary incentives and none used incentives that lengthen the
contract's term. The T-45 program office uses a performance bonus
incentive, which allows the program to withhold monthly performance
bonuses for contractor performance that did not meet or exceed
thresholds on both incentive metrics. The program measures ready-for-
training availability and the maintenance cancellation rate. The
contractor must meet or exceed performance thresholds for these
metrics at all three locations where the aircraft are based to receive
an overall bonus. As a result, the contractor could lose as much as 65
percent of the available bonus by not meeting requirements at a single
location. According to program officials, this incentivizes the
contractor to perform optimally at all three locations. Performance
records show that the contractor has earned most of the available
bonus since the contract was awarded in 2008. Similarly, the contract
for CH-47 engine maintenance support includes a clause which allows
the contractor to earn an incentive fee for reducing engine repair
turn-around time. Since the contract began in 2011, there has been one
evaluation period; the contractor did not meet the incentive metric
and did not earn any incentive fee. On the other hand, MH-60 program
officials told us that incentives in the form of additional payments
are not necessary for their program's maintenance support contract.
They added that the contractor is self-incentivized to maximize its
profit in this firm-fixed price contracting arrangement, which can be
achieved through realizing efficiencies. Furthermore, they questioned
the value of paying a contractor to provide services above and beyond
what the program requires.[Footnote 28] Instead, contract provisions
allow the government to reduce the contractor's payment if the
contractor's work does not meet minimum thresholds. MH-60 program
officials reported that they have not had to make any downward price
adjustments because the contractor is exceeding contract requirements.
Programs are now receiving incurred cost data to control maintenance
costs for two five-year, firm-fixed price contracts, though this
approach was not used in previous contracts for the same services.
Since 2009, the MH-60 program office has required the contractor to
submit incurred cost data semiannually. Program officials said that
they were directed by the Office of the Assistant Secretary of the
Navy to request the contractor's incurred cost data and were supported
by USD(AT&L) in negotiating for it. By comparing incurred costs and
contract prices, program officials said that they were able to
negotiate more favorable prices for the 2011 follow-on maintenance
support contract. During the previous contract, the contractor was
able to realize efficiencies that drove down its incurred costs. With
access to this information, the MH-60 program was able to re-baseline
contract costs and negotiate lower prices to reflect these
efficiencies. The AH-64 and CH-47 programs also receive incurred cost
data. A May 2011 DOD Inspector General audit found that the AH-64 and
CH-47 programs were paying above fair and reasonable prices for parts
supplied through their 5-year maintenance support contract.[Footnote
29] The Inspector General reviewed costs for 24 high-dollar parts and
calculated that the contractor charged the Army about $13 million more
than the fair and reasonable prices for 18 of the parts. Based on this
finding, these programs began reviewing incurred costs for the highest-
value parts supplied through this contract. The incurred cost review
is being performed in parallel with a major update of total parts
pricing on the contract, and program officials expect that there will
be many downward price changes as a result. The program office plans
to perform this review annually over the term of the contract.
DOD has not collected information concerning the effectiveness of the
various incentives or cost-control tools used on long-term maintenance
contracts, but it has recognized efforts made by individual programs
to improve acquisitions of such services. For example, during a
December 2010 peer review of the MH-60 airframe contract, USD(AT&L)
officials noted that the use of incurred cost data allowed the program
to negotiate lower prices for certain services. Program officials told
us that it was difficult to negotiate for incurred cost data for fixed-
priced contracts as contractors are generally reluctant to share their
actual costs and seek to protect business-sensitive information.
USD(AT&L) and military department officials told us that they are
encouraging program officials to be more aggressive when asking for
incurred costs, especially in situations where the government does not
have the benefit of leveraging competition.
Conclusions:
DOD does not collect data on the extent to which long-term contracts
are currently used and managed, but our assessment of 10 contracts
shows the value of having such information. Decisions made early in
the acquisition cycle, and in particular, whether DOD will buy the
rights to technical data are critical to availing itself of choices
later in a program's life cycle. However, in the early stages,
programs are often confronted with the choice between allocating
scarce resources to enhance capability or maintaining future
flexibility in terms of maintaining the system. Once the decision to
forgo buying technical data is made, DOD's leverage in terms of being
able to compete maintenance support or to provide it in house is
largely lost. Programs must then rely on other, less powerful tools to
assure good performance and good prices. The data we collected on
eight programs that are in the process of making decisions related to
securing access to technical data indicate that DOD is considering its
future needs, but final decisions have yet to be made in several
cases. The department also does not have information on the approaches
used by various programs with long-term maintenance contracts to
incentivize contractor performance and gain insight into contractor
costs to help ensure that the government is getting the best value for
its investment. DOD is considering several policy and data-related
initiatives that could improve its insight on these contracts, but
these efforts are in the early stages of development. Gaining insight
into the department's use of long-term maintenance contracts as well
as identifying lessons learned on what approaches work best to
incentivize performance and control costs would help inform future
acquisition strategies and reduce risk.
Recommendations for Executive Action:
To help inform DOD's use of long-term maintenance contracts, we
recommend that the Secretary of Defense direct the Under Secretary of
Defense for Acquisition, Technology, and Logistics, in coordination
with cognizant offices within each of the military departments, to
take the following two actions:
* Collect and analyze information on the use of long-term maintenance
contracts by major weapon system programs; and:
* Collect and disseminate lessons learned or best practices regarding
the use of incentives and cost-control tools that can maximize the
government's leverage when considering the future use of such
contracts.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report, stating that
it concurred with both recommendations. DOD stated that it planned to
develop methodologies to collect the needed information and
disseminate best practices and lessons learned, but did not provide
timeframes for doing so. We recognize that weighing options will take
some time, but encourage the department to do so in a timely fashion.
DOD's written response is reprinted in appendix II. DOD also provided
technical comments that were incorporated as appropriate.
We are sending copies of this report to the Secretary of Defense and
other interested parties. In addition, the report is available at no
charge on the GAO website at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Belva M. Martin at (202) 512-4841 or martinb@gao.gov or Cary
Russell at (202) 512-5431 or russellc@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to
this report are listed in appendix III.
Signed by:
Belva M. Martin:
Director, Acquisition and Sourcing Management:
Signed by:
Cary B. Russell:
Acting Director, Defense Capabilities and Management:
[End of section]
Appendix I: Scope and Methodology:
To gain insight into the how long-term maintenance contracts are
managed by the Department of Defense (DOD), we assessed (1) the extent
to which DOD uses long-term maintenance contracts to support major
weapon system programs, (2) DOD's ability to select alternative
maintenance services providers for its major weapon system programs,
and (3) how long-term maintenance contracts have been structured to
incentivize contractors' performance and manage contractor costs.
After consulting with DOD acquisition and logistics officials, for the
purposes of this report we defined long-term maintenance contracts as
those with a total potential period of performance of at least 5 years
that provide depot-level maintenance services or support performance
of maintenance functions. Additionally, we limited the scope of our
review to include those long-term contracts that support major defense
acquisition programs.[Footnote 30]
To assess the extent to which DOD uses long-term maintenance
contracts, we reviewed pertinent DOD acquisition and maintenance
policies and DOD's four most recent reports to Congress on the
distribution of funds for public and private depot maintenance work
compiled by the Office of the Assistant Secretary of Defense for
Logistics and Materiel Readiness. Additionally, we examined a recent
services portfolio analysis of Federal Procurement of Data System-Next
Generation (FPDS-NG) data performed by the Office of Defense
Procurement and Acquisition Policy to determine department spending
for maintenance services.[Footnote 31] We interviewed senior
acquisition and logistics officials from the Office of the Under
Secretary of Defense for Acquisition, Technology, and Logistics and
the military departments to determine what department-wide data was
collected, reported, and analyzed regarding long-term maintenance
contracts. We also performed independent analysis of FPDS-NG data to
determine the extent to which this system provides insight into DOD's
use of long-term maintenance contracts. After determining that DOD
lacked department-wide data on the use of long-term maintenance
contracts, GAO attempted to gather this information from program
offices and program executive offices in each of the military
departments. However, due to data reliability issues and incomplete
responses, GAO determined that it could not use the information
collected with reasonable assurance of accuracy for department-wide
analysis of long-term maintenance contracting use and management.
Based on further discussions with military department officials, we
reviewed 10 long-term contracts supporting seven major defense
acquisition programs. We selected these contracts to represent each of
the military departments and to illustrate different maintenance
approaches. The programs we selected included the following:
Air Force:
* Joint Surveillance Target Attack Radar System (JSTARS):
* C-130 Hercules transport aircraft:
* KC-10 Extender refueling tanker aircraft:
Army:
* AH-64 Apache helicopter:
* CH-47 Chinook helicopter:
Navy:
* MH-60 Seahawk helicopter:
* T-45 Goshawk training aircraft:
To determine the extent to which DOD has the ability to select
alternative maintenance services providers for its major weapon system
programs, we reviewed DOD and military department policy and
interviewed senior officials in the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics and military
department officials to determine how maintenance options are
considered and what factors contribute to retaining program
flexibility for sourcing depot-level maintenance. For the programs we
reviewed, we examined acquisition plans to determine how the
government decided upon a contract-based approach to maintenance. We
interviewed cognizant program officials to determine the factors that
impact the government's ability to change maintenance providers,
focusing on the ability to transition contracted maintenance work to a
government-owned and government-operated depot and the ability to
recompete maintenance contracts. We also requested a list of major
defense acquisition programs that recently went through an acquisition
review and preliminary information on provisions for acquiring
technical data rights. For the eight programs DOD identified as having
such a review between October 2010 and October 2011, we interviewed
program officials and reviewed acquisition documents, such as
acquisition strategies and life-cycle sustainment plans, which
described the rationale for the program's plans to acquire technical
data rights.
To assess how long-term maintenance contracts were structured to
incentivize contractors' performance and manage contractor costs, we
reviewed acquisition plans, contractual information, including pricing
data and price negotiation memorandums, and interviewed cognizant
acquisition and logistics officials to understand the incentives and
tools used by program offices to motivate contractor performance and
provide visibility into contractor costs. For the 10 contracts we
selected, we reviewed programs' use of monetary incentives such as
award and incentive fees, performance bonuses, and downward price
adjustments. Additionally, we reviewed programs' use of contract term
incentives, specifically award terms and incentive options, which can
extend a contract's period of performance. We analyzed incentive plans
and contractor performance data to determine how performance was
assessed, recorded, and resulted in the award of fee or additional
years of contracted work. We also interviewed program officials on the
use of incentives and compared prior versions of incentive plans to
determine how incentive metrics changed over time. For the 10
contracts we reviewed, we identified the extent to which programs used
incurred cost data, price renegotiations, and cost-based incentive
metrics as a means to gain insight into contractor costs. We also
interviewed officials from the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics, the military
departments, and program offices on the benefits and risks associated
with long-term contracts.
We conducted this performance audit from February 2011 through May
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of Defense:
Office of The Under Secretary Of Defense:
Acquisition, Technology, and Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
May 25, 2012:
Ms. Belva M, Martin:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Martin:
This is the Department of Defense (DoD) response to the GAO Draft
Report GA0-12-558, "Defense Acquisitions: Further Action Needed to
Improve DOD's Insight and Management of Long-term Maintenance
Contracts," dated April 24, 2012 (GAO Code 120968). Detailed comments
on the report recommendations are enclosed.
Sincerely,
Signed by:
Richard Ginman:
Director, Defense Procurement and Acquisition Policy:
Enclosure: As stated.
[End of letter]
GAO Draft Report Dated April 24, 2012:
GAO-12-558 (GAO Code 120968):
"Defense Acquisitions: Further Action Needed To Improve Dod's Insight
And Management Of Long-Term Maintenance Contracts"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: To help inform DoD's use of long-term maintenance
contracts, GAO recommends the Secretary of Defense direct the Under
Secretary of Defense (Acquisition, Technology and Logistics), in
coordination with each of the military departments, to collect and
analyze information on the use on long term maintenance contracts by
major weapon system programs.
DoD Response: Concur. The Department will develop a methodology to
collect and analyze information on the use of long term maintenance
contracts by major weapon system programs.
Recommendation 2: To help inform DoD's use of long-term maintenance
contracts, GAO recommends the Secretary of Defense direct the Under
Secretary of Defense (Acquisition, Technology and Logistics), in
coordination with each of the military departments, to collect and
disseminate lessons learned or best practices regarding the use of
incentives and cost control tools that can maximize the government's
leverage when considering the future use of such contracts.
DoD Response: Concur. The Department will develop a methodology to
collect and disseminate lessons learned or best practices regarding
the use of incentives and cost control tools to maximize the
government's leverage when considering future use of long-term
maintenance contracts.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contacts:
Belva M. Martin, (202) 512-4841 or martinb@gao.gov:
Cary B. Russell, (202) 512-5431 or russellc@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Carleen Bennett, Assistant
Director; Timothy DiNapoli, Assistant Director; Steven Banovac; Lee
Cooper; Julia Kennon; John Krump; Wiktor Niewiadomski; Bob Swierczek;
and Tom Twambly made key contributions to this report.
[End of section]
Footnotes:
[1] According to DOD officials, operating and support costs generally
range from 60 to 80 percent of a weapon system's total costs,
depending on the weapon system type. According to DOD, product support
encompasses materiel management, distribution, technical data
management, maintenance, training, cataloging, configuration
management, engineering support, repair parts management, failure
reporting and analysis, and reliability growth.
[2] Defense Federal Acquisition Regulation Supplement contract clause
252.227-7013 defines technical data as "recorded information,
regardless of the form or method of the recording of a scientific or
technical nature (including computer software documentation)... [but
not including] computer software or data incidental to contract
administration, such as financial and/or management information."
Technical data for weapon systems includes drawings, specifications,
standards, and other details necessary to ensure the adequacy of item
performance, as well as manuals that contain instructions for
installation, operation, maintenance, and other actions needed to
support weapon systems. GAO, Defense Acquisition: DOD Should Clarify
Requirements for Assessing and Documenting Technical-Data Needs,
[hyperlink, http://www.gao.gov/products/GAO-11-469] (Washington, D.C.:
May 11, 2011).
[3] [hyperlink, http://www.gao.gov/products/GAO-11-469].
[4] GAO, Defense Management: DOD Needs to Reexamine its Extensive
Reliance on Contractors and Continue to Improve Management and
Oversight, [hyperlink, http://www.gao.gov/products/GAO-08-572T]
(Washington, D.C.: Mar. 11, 2008); Defense Acquisitions: Assessments
of Selected Weapon Programs, [hyperlink,
http://www.gao.gov/products/GAO-10-388SP] (Washington, D.C.: Mar. 30,
2010); and Defense Logistics: Improvements Needed to Enhance Oversight
of Estimated Long-term Costs for Operating and Supporting Major Weapon
Systems, [hyperlink, http://www.gao.gov/products/GAO-12-340]
(Washington, D.C.: Feb. 2, 2012).
[5] Major defense acquisition programs are those estimated by the
Under Secretary of Defense for Acquisition, Technology, and Logistics
to require an eventual total expenditure of more than $365 million for
research, development, test, and evaluation, based on fiscal year 2000
constant dollars; $2.190 billion for procurement in fiscal year 2000
constant dollars; or are designated as a major defense acquisition
program by the milestone decision authority.
[6] The Federal Procurement Data System-Next Generation is the federal
government's current system for tracking information on contracting
actions.
[7] Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics, Department of Defense Instruction 5000.02,
Operation of the Defense Acquisition System, December 8, 2008.
[8] Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics, Document Streamlining--Program Strategies
and Systems Engineering Plan, April 20, 2011; and Document
Streamlining--Life-Cycle Sustainment Plan, September 14, 2011.
Specifically, the Assistant Secretary of Defense for Logistics and
Materiel Readiness is to review and approve sustainment plans for
major defense acquisition programs designated as Acquisition Category
ID or those that are designated as being of special interest.
[9] Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics, Department of Defense Directive 4151.18,
Maintenance of Military Materiel, March 31, 2004.
[10] DOD components include the Office of the Secretary of Defense,
the military departments, the Chairman of the Joint Chiefs of Staff,
the combatant commands, the Office of the Inspector General, the
defense agencies, DOD field activities, and all other organizational
entities in DOD.
[11] Department of Defense Instruction 4151.20, Depot Maintenance Core
Capabilities Determination Process, January 5, 2007.
[12] Pub. L. No. 112-81 ß 801 (2011).
[13] Pub. L. No. 111-23 ß 202(b)(7) (2009).
[14] [hyperlink, http://www.gao.gov/products/GAO-11-469].
[15] DOD may obtain different levels of rights to technical data,
including unlimited rights, government-purpose rights, and limited
rights. If DOD obtains unlimited rights, it may provide the data to
anyone for any reason. However, if DOD obtains government-purpose
rights, it may provide the data to third-party contractors only for
activities in which DOD is involved, including competitive
reprocurement but not including commercial purposes. If DOD obtains
limited rights, it may only use the data internally and may provide
the data to third parties in a limited number of circumstances.
[16] Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics, Better Buying Power: Guidance for Obtaining
Greater Efficiency and Productivity in Defense Spending, September 14,
2010.
[17] Under Secretary of Defense for Acquisition, Technology, and
Logistics, Implementation Directive for Better Buying Power -
Obtaining Greater Efficiency and Productivity in Defense Spending,
November 3, 2010.
[18] Prior GAO work found systemic weaknesses in DOD's data gathering
and reporting processes to support these efforts, which prevents the
precise calculation of DOD's funding for public and private-sector
depot maintenance and repair workloads, even at the aggregate level.
See GAO, Depot Maintenance: Issues and Options for Reporting on
Military Depots, [hyperlink, http://www.gao.gov/products/GAO-08-761R]
(Washington, D.C.: May 15, 2008).
[19] GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, [hyperlink,
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9,
2006).
[20] For more information see GAO, Defense Acquisitions: Status of
DOD's Implementation of Independent Management Reviews for Services
Acquisitions, [hyperlink, http://www.gao.gov/products/GAO-10-284]
(Washington, D.C.: Jan. 28, 2010).
[21] We were unable to determine, even after working with military
department and program officials, the number of long-term maintenance
contracts used to maintain major defense acquisition programs. For
example, we requested information from offices responsible for major
defense acquisition programs as identified by the military
departments, but found that in many instances program offices either
did not provide the requested information or the information provided
was incomplete, precluding a department-wide assessment. Consequently,
we worked with officials from the military departments to identify
potential programs that might be using long-term contracts. Air Force
acquisition officials identified at least nine programs that used long-
term maintenance contracts, including the F-22 and C-17. Navy and Army
officials indicated that we needed to contact program executive
offices or program offices to obtain more precise information on the
extent to which such contracts are used.
[22] [hyperlink, http://www.gao.gov/products/GAO-11-469].
[232] GAO, Defense Contracting: Competition for Services and Recent
Initiatives to Increase Competitive Procurements, [hyperlink,
http://www.gao.gov/products/GAO-12-384] (Washington, D.C.: Mar. 15,
2012).
[24] GAO, Depot Maintenance: Air Force Is Assessing Engine Maintenance
Options for Work Currently Performed at Kelly Aviation Center,
[hyperlink, http://www.gao.gov/products/GAO-11-274R] (Washington,
D.C.: Feb. 11, 2011).
[25] Specifically, Navy officials said that under this acquisition,
the government purchased technical data for the sea frame and mission
package component interface.
[26] GAO, Defense Management: Opportunities to Enhance the
Implementation of Performance-Based Logistics, [hyperlink,
http://www.gao.gov/products/GAO-04-715] (Washington, D.C.: Aug. 16,
2004).
[27] We reported in 2008 that the United Kingdom used an "open book
accounting" arrangement to gain visibility into contractors' costs.
Additionally, the four long-term contracts used as examples by the
United Kingdom's Ministry of Defence each scheduled price negotiations
during their 10-to 25-year terms. See GAO, Defense Logistics: Improved
Analysis and Cost Data Needed to Evaluate the Cost-effectiveness of
Performance Based Logistics, [hyperlink,
http://www.gao.gov/products/GAO-09-41] (Washington, D.C.: Dec. 19,
2008).
[28] In 2008, GAO reported on the department's awarding of incentives
for performance exceeding contract requirements in performance based
logistics arrangements, noting that paying for excess performance may
not provide the best value to the government. See [hyperlink,
http://www.gao.gov/products/GAO-09-41].
[29] Department of Defense Inspector General, Excess Inventory and
Contract Pricing Problems Jeopardize the Army Contract with Boeing to
Support the Corpus Christi Army Depot, D-2011-061 (Arlington, Va.: May
3, 2011).
[30] Major defense acquisition programs are those estimated by the
Under Secretary of Defense for Acquisition, Technology, and Logistics
to require an eventual total expenditure of more than $365 million for
research, development, test, and evaluation, based on fiscal year 2000
constant dollars; $2.190 billion for procurement in fiscal year 2000
constant dollars; or are designated as a major defense acquisition
program by the milestone decision authority.
[31] The Federal Procurement Data System-Next Generation is the
federal government's current system for tracking information on
contracting actions.
[End of section]
GAOís Mission:
The Government Accountability Office, the audit, evaluation, and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the
performance and accountability of the federal government for the
American people. GAO examines the use of public funds; evaluates
federal programs and policies; and provides analyses, recommendations,
and other assistance to help Congress make informed oversight, policy,
and funding decisions. GAOís commitment to good government is
reflected in its core values of accountability, integrity, and
reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAOís website [hyperlink, http://www.gao.gov]. Each
weekday afternoon, GAO posts on its website newly released reports,
testimony, and correspondence. To have GAO e-mail you a list of newly
posted products, go to [hyperlink, http://www.gao.gov] and select ďE-
mail Updates.Ē
Order by Phone:
The price of each GAO publication reflects GAOís actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black
and white. Pricing and ordering information is posted on GAOís
website, [hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
Connect with GAO:
Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov].
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm];
E-mail: fraudnet@gao.gov;
Automated answering system: (800) 424-5454 or (202) 512-7470.
Congressional Relations:
Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, DC 20548.
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, DC 20548.